Pensions, benefits and taxes – the political illusionist’s playthings (ace guest blog from Ruth Gilbert)

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Perception is reality.  The reality is perception will drive voting choices. Voting choices will drive a reality which does not match the perceptions. wordsWe think we’re wise to this, but still we get blind-sided and the surprise is rarely a pleasant one. We’ve only ourselves to blame as it’s not fun spending much time thinking about it.  But today I’ve forced myself. A bit of an eye-popper.

Palm-offs and spin on the £2.5bn welfare budget savings so far

State Pension    the majority of the welfare budget

Just yesterday I spotted a palm-off I didn’t know had hit me. I thought I was quite bright. Oh, well.  It was only then did I realize a seemingly obscure element amongst the recent pension changes has made me about £20,000 worse off. It turns out this is the rough present value of the inflation protections I previously would have had for the protected rights elements of my occupational pensions. Which are fairly modest to start with. Richard Dyson, whose Telegraph article alerted me, points out this will affect millions of us who thought at least we know we are with any final salary benefits we still have left.  Not sure if I should feel better or worse to realise the hit on me comes in a bit under average for women.

I thought I knew where I was with my state pension too. In fact the new flat-rate state pension sounded great. David Cameron described it as more generous than its predecessor.  But pension consultant Malcolm MacLean points out in the FT actually overall it’s neutral initially and then less generous in the long-run. When Mr C won’t care about our votes anymore.  And it’ll be fine for him this election, as a November survey showed 79% of us either believed it would be more generous or didn’t know it wouldn’t.

But at an individual level it’s not as good as we thought in the short term either. In fact many people still seem to be in for a nasty surprise when they learn what they’ll actually be getting.

Of course there was no surprise to learn the goal-posts on age would be moved.  But then it was very surprising how NI contributions records would not be worth what we thought. Pity the poor souls who’d only clocked up 9 years, and now too late. They thought they were going to get a third and now zero. Oh well, they weren’t going to get much anyway…so what difference will that make?

And of the 60% of us who will not be entitled to the full rate when it comes out, how many will have understood how much less they would be getting? Best just not to think about it, eh?

Ending “scrounging” – and lives

Well, there was much less of scrounging as a percentage of the welfare budget than we’ve been led to believe. But the hammer to smash that (percentage) nut, has ended more than scrounging. It has ended the safety net for people who really need it. And in some cases lives.   

The DWP have been asked by MPS (and so far refused) to reveal the detail of the reviews they’ve done of 49 deaths related to benefit claim problems.  But these may be only the tip of the iceberg:

suicides

Correlation doesn’t prove causation, but it’s more than likely not total co-incidence.

Joe Ferns of the Samaritans, commenting on these figures has pointed out that men from deprived areas are 10x more likely to kill themselves than their counterparts elsewhere.

At the more visible end of the scale, it’s easy to see the social cost of welfare “reform” as measured by the GP and social worker sanctioned usage of food-banks:

Food bank

Yes, the number of vouchers really has gone up by over 40 times the 25,900 used in 2008/09.

Palm-offs and spin on the £12bn(?) welfare budget savings to come

While we’re rooting around for where welfare budget savings can be made, seeing as Ian Duncan Smith claims they haven’t worked it out yet, let’s consider where the money goes according to the BBC’s view of the OBR figures:

reality check

So more pensions squeezing by stealth or otherwise looks a candidate. The nature of the pensions changes being an attrition over the long term means the hurt to be seen would be more of a slow reveal, but no less distressing to observe, or worse, experience. And we all think “welfare budget” means “scroungers budget”, so we’ll be happy to hear that’s gone down, in blissful ignorance of the hit on our pensions too.

But the BBC Reality check article looking for where the cuts could land says “The Conservatives have already pledged to protect pensioner benefits. So the party is focusing on £125bn of unprotected welfare spending, most of which goes to people of working age.” (Well, in April 2010 before the last election, David Cameron also famously said, “We have absolutely no plans to raise VAT”. Within a year, it went from 17.5% to 20% (4 Jan 2011). 

However, if pensions are indeed protected, then it’s pretty clear to see the cuts will all fall on, well, the poor, the poorly and their carers. Often all the same thing, so at least that’s efficient.

Oh and the other thing is: can we trust it’s only £12bn of welfare that will be targeted?…..

Just a typo: we meant £21bn

Maybe it’s £21bn they’ll really need to go for from welfare if this bit from the autumn statement (near end) is to believed:

“SAVINGS TO THE WELFARE BILL SINCE 2010 AND PROSPECTS FOR THE NEXT PARLIAMENT

95. Economic developments, particularly in the labour and housing markets, together with implementation difficulties, have meant that the welfare savings originally expected by the Government and the OBR have not materialised in full. Welfare reforms that were originally expected by both the Government and the OBR to yield savings of £19 billion have in fact resulted in only £2.5 billion of savings.

96. The Chancellor has said that the sharp reductions in departmental spending that the OBR assume will occur after 2015-16 can be mitigated by further welfare savings: “the composition of the spending reductions would be different from that set out by the OBR because I would have a higher welfare component.” The IFS have calculated that £21 billion in welfare savings would be needed over the course of the next Parliament to achieve this objective.”

Numbers or people?

The scary thing about all this is how it’s just an arithmetical exercise with no regard to the human cost when it comes to making cuts (more positively framed as “savings”). Only when it’s a bribe are we asked to imagine how lovely it will feel. Even though it’s an illusion.

So let’s not be fooled into feeling how much better off we’ll be from the sleight of hand voter bribes “rewarding” hard-working people and homeowners, because it’s not as much as politicians of any color would have us believe.  Conversely the misery of those at the bottom of pecking order turns out to be much worse than we are encouraged to believe.

Still that’s someone else I don’t know isn’t it?  As long as I keep in good health, can find a job and no-one tricks me out of my pension. 

About the Author

Ruth Gilbert is an insurance proposition contractor in life and pensions. Ruth has more than 25 years’ insurance experience, including marketing, proposition design and technical roles. Armed with this experience, a law degree and having run her own website company, Ruth brings a unique perspective to the future of insurance propositions in the UK. 

Whilst campaigning for changes to the protection cover market-place in the UK to become relevant in today’s digital age of consumer power and under-insurance, she is working on bringing improved propositions to market via consultancy assignments and joint venture partnerships.

I suppose no job with Ros Altman for me then.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Pensions, benefits and taxes – the political illusionist’s playthings (ace guest blog from Ruth Gilbert)

  1. This was a so creative and
    useful information
    Illusionists in the UK
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  2. This was a nice
    But at an individual level it’s not
    as good as we thought in
    the short term either.
    illusionists in the UK
    Thank you.

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